The winter holiday season is coming up, and if you’ve got time off lined up you may like to know how holiday pay works through an umbrella company.
Contractors and agency workers often get less opportunities to take much-needed time off, so when the time comes to take annual leave it’s important to plan finances accordingly to ensure you can still receive income.
Contractors who work through limited companies do not get the same holiday allowance as permanent employees and must set aside their earnings to cover time off.
However umbrella company users (or ‘umbrella employees’) are given the same statutory holiday entitlement as a permanent employees. This means you are legally able to take 5.6 weeks’ paid holiday per year, which may or may not include bank holidays. You should check your contract with your agency for full details.
Holiday pay for umbrella company employees
As a result of the Harpur Trust versus Brazel case, the Supreme Court ruled that employees who work for part of the year are entitled to the same holiday as employees who work all year. Therefore, workers who work for part of the year should receive 5.6 weeks of annual leave. This judgement applies to employees and workers who work for part of the year under a permanent or continuous contract with irregular hours, such as seasonal workers, term-time only workers, bank staff, zero-hour contracts and workers engaged under recruitment agency or umbrella contracts.
To be consistent with this ruling and to ensure you receive the statutory benefits you are entitled to receive as an employee of an umbrella company, most compliant umbrella companies will calculate your holiday pay at a rate of 25%.
How do I receive my holiday pay?
Most umbrella companies will include your holiday pay alongside your wages each time you get paid. This will be shown as a separate entry on your payslip. In this case if you wish to have income or savings for annual leave you could set this amount aside for the future.
The alternative is for your holiday pay to be accrued – which involves the umbrella company calculating your holiday pay out of your wages and setting it aside for you. If you prefer this option, you’ll need to request your umbrella company to pay out your holiday pay when you require it. The accrual method is less frequently used because it puts the responsibility on you as the contractor to remember to ask for holiday pay.
Umbrella Company UK will support you on your contracting journey
Umbrella Company UK is a professional umbrella company providing payroll services for contractors and agency workers in the public and private sectors. We take care of everything from set up and agency invoicing to deducting tax and National Insurance and getting you paid.
We are always transparent and our experts will inform you exactly how an umbrella company works, including holiday pay and entitlements.